Hello
First of all can anyone confirm if Annual investment allowances are calculated to the day or month? Every example I have seen shows it to the latter but our software does it to the day
Secondly, company client has a Feb 2013 year end and has the following additions qualifying AIA's
01/03/12 to 31/03/12 £379
01/04/12 to 31/12/12 £30621
01/01/13 to 28/02/13 £50374
Please can someone confirm the AIA's due, particularly in the 2nd period
Thanks in advance
Replies (4)
Please login or register to join the discussion.
Months or days
You can choose which you want to use in the computation however you can only use months if the period starts on the first day of a month and ends on the last day - as is the case with your client.
HMRC always uses months in examples as it is easier to understand i.e 3/12 rather than 92/365
The maximum total AIA for the whole period (using a days calculation) is £67,741 with the second period having a maximum of £22,877
I attended a CPD course in early July this year and the accompanying notes gave an example with exactly the same year end but used months rather than days and the maximum AIA for the period was £68,750 and the AIA for the period from 1/4/12 to 31/12/12 was £18,750.(9/12 x £25,000)
Figures broken down where:-
1/3/12 - 31/3/12 £100,000 x 1/12 = £8,333
1/4/12 - 31/12/12 £25,000 x 9/12 = £18,750
1/1/13 - 28/2/13 £250,000 x 2/12 = £41,667
More complex
Yes, you can choose monthly or daily as Gary says.
In calculating the amount of AIA, you need to go through a two-stage process.
First, you need to calculate the maximum AIA for the whole chargeable period, and this is where the figures given by oneillmark come in. So the maximum AIA for the whole period is £68,750, calculated as shown.
That is not the end of it, though, as a separate cap is imposed for the three constituent parts, and the computation is not the same as the one used to reach the overall figure of £68,750.
In the first month, your expenditure of £379 is easily within the limit (£31,250), so the whole £379 qualifies for AIAs.
For the period from 1 April to 31 December 2012, you have to use the “A minus B” formula that is given in the legislation.
A is the maximum AIA that would have been due for the period from 1 April 2012 to the end of the chargeable period, if the 2013 changes had not been made. So you have an 11-month period for which the maximum annual AIA would have been £25,000, giving a figure of £22,912 (£25,000 x 11/12).B is the excess of the amount claimed in the earlier period (£379 here) over the amount that could have been available for that earlier period if it had been a standalone chargeable period (£8,333, i.e. one month at £100,000 per year). So B is in this case zero.
A minus B is therefore £22,912. So £22,912 of the £30,621 qualifies.
You then have to calculate the maximum amount for the final two months. This is calculated as nine months at £25,000 per year (£18,750), plus two months at £250,000 per year (£41,667). So the maximum for this two month period is £60,417, more than covering the expenditure in that part of the overall chargeable period.
So the maximum AIA in each period will be £379 then £22,912 then £50,374, but the overall cap is then imposed, which brings you back to the figure of £68,750. So I agree with oneillmark’s overall conclusion, but I do not agree with the broken down figures (even though those figures are correct for the purposes of calculating the overall maximum for the period).
In other circumstances you will get to the wrong final answer unless you go through the more complex stages of the calculation. (It can also be relevant to break down the figures if some of the expenditure is special rate and some is not, to ensure that all the special rate expenditure is covered by AIAs.)
Ray